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Sarun v. Dignity Health

California Court of Appeals, Second District, Seventh Division

November 12, 2019

TONY SARUN et al., Plaintiffs and Appellants,
DIGNITY HEALTH, Defendant and Respondent.

          APPEAL from an order of the Superior Court of Los Angeles County No. BC483764, Maren E. Nelson, Judge. Reversed and remanded with directions.

          Law Offices of Barry Kramer, Barry L. Kramer; Carpenter Law and Gretchen Carpenter for Plaintiffs and Appellants.

          Ogloza Fortney, Darius Ogloza and David Fortney for Defendant and Respondent.

          PERLUSS, P. J.

         Tony Sarun had no health insurance in March 2012 when he received emergency care at Northridge Hospital Medical Center, then owned and operated by Dignity Health.[1] Upon admission Sarun signed an agreement to pay the hospital's “full charges, unless other discounts apply.” “Full charges” were defined as “the Hospital's published rates (called the chargemaster), prior to any discounts or reductions.” The admissions contract explained uninsured patients might qualify for government aid programs or financial assistance from Dignity Health.

         After receiving an invoice for $23, 487.90, which reflected a chargemaster rate of $31, 359 and a $7, 871.10 “uninsured discount, ” and without applying for any other discount or financial assistance, Sarun filed this putative class action lawsuit. In his third amended complaint, filed in May 2015, Sarun asserts claims for unfair and/or deceptive business practices under Business and Professions Code section 17200 (UCL) and violation of the Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.) and seeks declarations that Dignity Health's billing practices as they relate to uninsured individuals who received emergency care at a Dignity Health hospital in California are “unfair, unconscionable and/or unreasonable” and that, because the prices to be charged are not adequately disclosed or readily available to those individuals, its admissions contract contains an “open price” term within the meaning of Civil Code section 1611, [2] so that self-pay patients[3] are liable only for the reasonable value of the services or treatment provided.

         In June 2017 Sarun moved for class certification of his cause of action for declaratory relief, now defining the proposed class as individuals who had received treatment at Northridge Hospital Medical Center during the proposed class period and who were directly billed for such treatment at chargemaster rates or chargemaster rates less an uninsured discount. In December 2017 the trial court denied Sarun's motion, finding the class was not ascertainable; common issues of fact did not predominate because it would be necessary to determine whether thousands of individual chargemaster rates were reasonable or unconscionable to provide meaningful relief; and, for the same reason, a class action was neither manageable nor a superior method for resolving the litigation. The court's order did not address Sarun's alternate request for certification of an issue class, limited to the question whether Dignity Health's admissions contract included an “open price” term.

         We exercise our inherent authority to modify the class definition, combining elements of the definition in Sarun's third amended complaint and his motion for class certification and limiting it to uninsured individuals who, during the relevant time period, received emergency care at Northridge Hospital Medical Center and who signed (personally or through an authorized agent) the admissions contract and were thereafter directly billed for that treatment at chargemaster rates or chargemaster rates less the uninsured discount. As to that redefined class, we reverse in part the trial court's order denying class certification and direct it to certify as a class issue whether Dignity Health's admissions contract contains an open price term, so that patients within the class are obligated to pay no more than the reasonable value of the services provided.


         1. Sarun's Emergency Room Treatment and the Admissions Contract

         According to the allegations of the third amended complaint, Sarun was taken by ambulance to the emergency room at Northridge Hospital Medical Center following a motor vehicle accident. He was released three to four hours later after being examined and receiving various diagnostic tests.

         While at the hospital Sarun signed a standard form “Conditions of Admissions and Treatment, ” which included terms governing payment for services. Paragraph 8(b) of the admissions contract stated, “Patients who do not have insurance must pay us for the services at our full charges, unless other discounts apply. However, uninsured patients may be able to qualify for government programs or financial assistance. Financial assistance may include a discount from the Hospital's full charges, free care, interest free payment plans or other assistance. Patients seeking government or financial assistance must complete an application.” The term “full charges” was defined at the beginning of the agreement as “the Hospital's published rates (called the chargemaster), prior to any discounts or reductions.” Paragraph 9, “Financial Assistance, ” explained the hospital could help uninsured patients enroll in government health care programs, and, if the patient did not qualify, might provide financial assistance under its own financial assistance policy.

         Sometime following his treatment, Sarun received a “Balance Due Notice, ” reflecting total charges of $31, 359, the chargemaster rate; an uninsured discount of $7, 871.10; and a balance due of $23, 487.90. The invoice stated, in addition to the uninsured discount, “you may be eligible for other forms of financial assistance such as government sponsored programs” and provided a telephone number for further information. A document included with the invoice described the financial assistance options, provided an application and enumerated the necessary documentation. (See Sarun v. Dignity Health (2014) 232 Cal.App.4th 1159, 1163.)[4] Sarun did not seek any further discount or apply for financial assistance. (Ibid.) However, a second invoice was sent to Sarun, showing that a “prompt pay” discount would reduce the balance due to $15, 648.15 if he paid the total within 30 days.[5]

         2. The Chargemaster List of Billable Medical Goods and Services

         Northridge Hospital Medical Center, like hospitals across the country, uses a charge description master or “chargemaster, ” which is a list of all the billable medical goods or services provided by the hospital. (See Health & Saf. Code, § 1339.51, subd. (b)(1) [“‘[c]harge description master' means a uniform schedule of charges represented by the hospital as its gross billed charge for a given service or item, regardless of payer type”].) As explained by Dignity Health, a chargemaster is a list, “generally contained in a spreadsheet, of every single patient-billable item or service available at a particular hospital.... The Chargemaster identifies each of these items and contains charge descriptions, billing codes, prices, and other information necessary for patient care and billing.” Each of Dignity Health's hospitals had its own chargemaster; each hospital set its own prices for items and services on its chargemaster list; and “[p]rices and markups over ‘cost,' vary widely not only by hospital but also by item or service.... Prices for procedures will vary with a number of factors, including staff resources, equipment resources, costs incurred related to the procedure and time elements.” Indeed, as the Supreme Court observed, “Chargemaster prices for a given service can vary tremendously, sometimes by a factor of five or more, from hospital to hospital in California.” (Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541, 561 (Howell).)

         A hospital is not prohibited from using its chargemaster for billing purposes (see Health & Saf. Code, § 127444) and is authorized to negotiate and charge alternative rates (see Bus. & Prof. Code, § 16770, subd. (f)). As Dignity Health acknowledges, contracts between hospitals and commercial insurance companies include a variety of negotiated price terms for different services and supplies, including percentage discounts from chargemaster rates, flat fees for certain services, per diem rates, “not to exceed” pricing and special payment terms for specific services such as trauma or burn care.

         A hospital's chargemaster must be posted on its website or made available at the hospital's physical location (Health & Saf. Code, § 1339.51, subd. (a)(1)) and must be filed with California's Office of Statewide Health Planning and Development (see Health & Saf. Code, § 1339.55), which makes chargemasters available to the public on its website.

         3. Sarun's Third Amended Complaint

         Sarun's third amended complaint alleges causes of action under the UCL and the CLRA and for declaratory relief under Code of Civil Procedure section 1060.[6] Addressing uninsured emergency care patients at Dignity Health generally and the 32 acute-care hospitals it owned or operated throughout California, not at just Northridge Hospital Medical Center, Sarun alleged Dignity Health used the same adhesive admissions contract at all its hospitals and required all emergency care patients or their agents to sign it. Sarun further alleged the admissions contract contains “no fixed or definite pricing terms” because the phrase “full charges, unless other discounts apply” is inadequately explained and cannot be made certain. Accordingly, the admissions contract has an open price term, obligating patients to pay only the reasonable value of the care received. Alternatively, Sarun alleges Dignity Health's chargemaster prices are several times greater than the reasonable value of the services provided, as well as the reimbursement amounts received from other categories of patients, and bear no relation to the hospital's actual costs for providing treatment or services. As a result, the chargemaster prices, if billed to an uninsured emergency care patient, are unconscionable.

         Sarun alleged he was bringing his action pursuant to Code of Civil Procedure section 382 and Civil Code section 1781 on behalf of himself and a class of all other persons similarly situated, defined as, “All individuals (or their guardians or representatives) who, on or after May 3, 2008, (a) received emergency care medical treatment at a Dignity hospital in California; (b) were not covered by commercial insurance or governmental healthcare programs at the time of treatment; and (c) were not given a payment assistance discount under Dignity's Payment Assistance Po1icy.”[7] He further alleged Dignity Health had acted or refused to act on grounds generally applicable to all members of the class, making final injunctive or declaratory relief appropriate for the class as a whole.

         For his UCL cause of action, Sarun alleged Dignity Health's conduct was both unfair and deceptive because the prices charged “were unduly excessive, were not disclosed or readily available to Dignity's patients, and the parties had unequal bargaining powers that led Sarun and the Class members to enter into their Contracts without knowledge of their terms.” Sarun also alleged Dignity Health's practices toward its uninsured emergency care patients were deceptive because it failed to disclose that those patients would be required to pay approximately three times more than other patients signing the same admissions contract and receiving the same treatment and services.

         For his CLRA cause of action, Sarun alleged Dignity Health misrepresented the characteristics, uses and benefits of the services it provided (including by representing it provides “affordable” care at the “lowest possible cost”) and advertised its services with an intent not to sell them as advertised.

         Sarun's third cause of action for declaratory relief sought a declaration that Dignity Health's billing practices as they relate to class members are “unfair, unconscionable, and/or unreasonable.” He also sought a declaration that Dignity Health's admissions contract “contains an ‘open price' term with respect to self-pay emergency care patients and thus [they] are liable to [Dignity Health] for no more than the reasonable value of the treatment/services provided.”

         4. Sarun's Motion for Class Certification; Dignity ...

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